As you may recall, I have been tracking growth rates in consumer
credit and retail sales for some time now, and my methodology and
conclusions are set forth in a report on the unsustainability of
sales in an environment beset by stubbornly high underemployment
and real (now looking like it will be nominal) wage deflation. My
original report on the subject can be found
here.

This time it seems clear that we have hit the ceiling on consumer
credit again. For the first time since the recession, we
experienced a sustained period of consumer credit growth (mostly
student loans and autos, as well as plastic) rather than a
continuation of the pattern of de-leveraging that we saw during –
and immediately after – the recession.

The acceleration of borrowing had an inflection point that
corresponds nicely with the announcement of QE2 and consumer
credit growth actually became net positive almost exactly upon
the commencement of Fed buying. Retail sales growth shot up too
and remained up into the second quarter. Then matters begin to
get really dicey – consumer credit continued to grow but retail
sales growth began a seemingly inexorable decline and we now
expect it to turn negative.

The problem is, you can’t service more and more debt with
stagnant/declining aggregate wages and continued high
underemployment.

The Confidence Fairy may help pry the plastic out of your
wallet, but she’s not much help when the bill comes!

The data illustrated by the graph below sets off all sorts of
warning signals and undoubtedly is playing a not-insignificant
role in the apparent return to recessionary or near-recessionary
conditions.